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Enthusiast Gaming Reports Q2 2024 Results

Posted on by Vaseline
Enthusiast Gaming Reports Q2 2024 Results

TORONTO, Aug. 14, 2024 (GLOBE NEWSWIRE) — Enthusiast Gaming Holdings Inc. (“Enthusiast Gaming” or the “Company”) (TSX: EGLX), a leading gaming media and entertainment company,
today announced financial results for the three months ended June 30, 2024 (“Q2 2024”).

“In Q2, we delivered on our commitment to establish a stable financial footing and create a clear pathway to scalable profits. We’ve also delivered significant strength to our balance sheet, adding
$20 million of liquidity through our debt financing to fund growth. We completed the outsourcing of our ad tech stack through our partnership with Playwire, a decision that has already resulted in
significant performance improvements across our network. We’ve established an efficient and scalable operating model that has positioned us for substantial profitability improvements throughout the
second half of 2024. Meanwhile, alongside all of these advancements, we have also reached the finish line on our path to profitability, in a quarter where we remained impacted by seasonal headwinds
and did not have the benefit of any of our tentpole events or partnerships,” said Adrian Montgomery, Board Chair and Interim CEO of Enthusiast Gaming.

“It is safe to say this is the turning point,” continued Mr. Montgomery. “We look out across a number of catalysts that we have in place to drive top line growth in the second half of the year,
each of which is poised to amplify our profitability across our lean operating model and record gross margins. On top of traditional second half seasonal lifts, we’ve invested in our direct seller
base, doubling the number of sellers in market in Q3 2024 versus the previous quarter; we have Season 3 of our tentpole program, NFL Tuesday Night Gaming, in September, along with the
launch of our newest sports league partnership with the NHL; we anticipate strong organic growth in our web properties through long-awaited expansion releases in major game titles covered by our
flagship properties; and we have the return of PocketGamer events in Helsinki and Jordan, all alongside a number of other growth drivers across our portfolio. Each of these elements builds on our
solid Q2 baseline, setting the stage for a series of increasingly strong quarters. With this renewed momentum, I am more confident than ever that we are just getting started.”

Financial Highlights for Q2 2024

  • Revenue of $14.7 million, compared to $42.6 million in Q2 2023, with the vast majority of the decline being attributable to the strategic deprioritization of low
    margin video platform revenue.
  • Gross profit of $9.7 million, compared to $15.0 million in Q2 2023, with gross margin expanding to 66.2% from 35.2% in the year ago period.
  • Operating expenses of $11.6 million, a $13.0 million year-over-year decrease from $24.6 million in Q2 2023 as a result of strategic initiatives taken to establish an
    efficient and scalable operating model in March 2024.
  • Adjusted EBITDA loss of $0.4 million, a $3.0 million improvement compared to $3.4 million in Q2 2023, and a $1.4 million improvement compared to $1.8 million in Q1
    2024.
  • Net loss and comprehensive loss of $2.9 million in Q2 2024 compared to $12.4 million in Q2 2023.

Business Highlights for Q2 2024

  • The Company secured $20 million of additional funding by way of a four-year non-revolving term loan, strengthening its balance sheet and providing significant growth
    capital, with the financing closing on July 12, 2024.
  • The Company amplified its focus on its highly engaged communities, increasing unique visitors across its web properties by approximately 30% in Q2 2024 relative to
    the year ago period, leading to an increase in overall time spent across its web properties of 26% year-over-year, in each case according to Comscore.
  • The Company’s focus on owned and operated web properties yielded a 71% increase year-over-year in RPM in Q2 2024, following the outsourcing of its ad tech to
    Playwire, which began in mid-May 2024 and was substantially completed in June 2024.
  • The Company made a number of expansions to its product and entertainment offerings, including U.GG’s expansion into Helldivers 2 and Swarm (a new League of Legends
    game mode), Icy Veins’ expansion into Zenless Zone Zero and World of Warcraft’s Cataclysm Classic, The Sims Resource adding VIP curated Bundles and free trials for paid subscribers, and Luminosity
    hosting multiple invitational events featuring Smash and Rocket League for sponsors including Amazon Prime and Kroger Gaming.
  • The Company announced the extension of its NFL Tuesday Night Gaming partnership for a third season and launched its first special episode for Season 3 on
    July 23rd achieving over 60,000 watch hours and counting.
  • The Company signed a partnership with the National Hockey League to launch NHL Puck ‘N Play which will commence in Q4 2024, adding another flagship product
    to our direct sales offering and opening doors to a roster of major existing NHL sponsors.

“We feel confident in the strategic decisions we made to improve profitability in 2024 by focusing on higher gross margin revenue lines coupled with a lower cost structure,” said Felicia
DellaFortuna, CFO of Enthusiast Gaming. “This was further punctuated by delivering a strengthened balance sheet in July 2024 as well as significant growth in engagement of its communities in Q2
2024.”

Second Quarter 2024 Results Comparison

Revenue was $14.7 million in Q2 2024, a 65% decrease compared to $42.6 million in Q2 2023. Media and Content revenue was $10.6 million in Q2 2024, a 71% decrease from $36.9 million in Q2 2023. The
Company’s strategic decision to de-prioritize the lower margin video platform revenue accounted for $19.5 million of the $26.3 million reduction. Direct Sales (the majority of which is included in
media and content revenue) decreased from $8.7 million in Q2 2023 to $4.1 million in Q2 2024 mainly due to a lower number of ramped sellers than the year ago period, contributing $4.6 million to
the decline in revenue. Esports and Entertainment revenue showed a decrease in Q2 2024 at $1.0 million relative to $1.7 million in Q2 2023 mainly due to the timing of certain events. Subscription
revenue decreased from $4.0 million in Q2 2023 to $3.1 million in Q2 2024 mainly due to the sale of certain non-core, non-profitable assets in April 2024.

Gross profit was $9.7 million in Q2 2024, a 35% decrease compared to $15.0 million in Q2 2023. Gross margin increased to 66.2% in Q2 2024 from 35.2% in Q2 2023.

Adjusted EBITDA loss was $0.4 million in Q2 2024 compared to an Adjusted EBITDA loss of $3.4 million in Q2 2023.

Net loss was $2.9 million, or $(0.02) per share, in Q2 2024, compared to $12.4 million, or $(0.07) per share, in Q2 2023.

Investor Conference Call

Management will host a conference call and webcast on Wednesday, August 14, 2024, at 5 p.m. ET to review and discuss its Q2 2024 results. Conference call details:

A replay will be available on Enthusiast Gaming’s website at enthusiastgaming.com/investors.

Supplemental Information

Enthusiast Gaming’s financial statements and management discussion and analysis (“MD&A”) are available at www.sedarplus.ca and enthusiastgaming.com/investors. All amounts are in Canadian dollars.

About Enthusiast Gaming

Enthusiast Gaming is a leading gaming media and entertainment company, building the largest platform for video game enthusiasts and esports fans to connect and compete worldwide. Combining the
elements of its five core pillars: creators, content, communities, games, and experiences, Enthusiast Gaming provides a unique opportunity for marketers to create integrated brand solutions to
connect with coveted Gen Z and Millennial audiences. Through its proprietary mix of digital media, content and gaming assets, Enthusiast Gaming continues to grow its network of communities,
reflecting the scale and diversity of gaming enthusiasts today.

Forward-Looking Statements

This news release contains certain statements that may constitute forward-looking information under applicable securities laws. All statements, other than those of historical fact, which address
activities, events, outcomes, results, developments, performance or achievements that Enthusiast Gaming anticipates or expects may or will occur in the future (in whole or in part) should be
considered forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”,
“estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating
that certain actions, events or results “may”, “could”, “would”, “might” or “will” (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking statements in
this news release include, but are not limited to, statements regarding trends in certain financial and operating metrics of the Company, and expectations relating to the financial performance and
the financial results of future periods.

Forward-looking statements are based on assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future
developments, including, but not limited to, expectations and assumptions concerning: interest and foreign exchange rates; capital efficiencies, cost saving and synergies; growth and growth rates;
the success in the esports and gaming media industry; the Company’s growth plan, and judgment applied in the application of the Company’s accounting policies and in the preparation of financial
statements in accordance with applicable financial reporting standards. While Enthusiast Gaming considers these assumptions to be reasonable, based on information currently available, they may
prove to be incorrect. Readers are cautioned not to place undue reliance on forward-looking statements. In addition, forward-looking statements necessarily involve known and unknown risks,
including, without limitation, risks associated with general economic conditions; adverse industry events; and future legislative, tax and regulatory developments. Readers are cautioned that the
foregoing list is not exhaustive. For more information on the risks, uncertainties and assumptions that could cause anticipated opportunities and actual results to differ materially, please refer
to the public filings of Enthusiast Gaming which are available on SEDAR+ at www.sedarplus.ca. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be
no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove
to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement and
reflect our expectations as of the date hereof, and thus are subject to change thereafter. Enthusiast Gaming disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-GAAP Measures

This press release references certain non-GAAP measures, including Adjusted EBITDA, as described below. These non-GAAP measures are not recognized measures under GAAP and do not have a standardized
meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement
those GAAP measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as
a substitute for analysis of the Company’s financial information reported under IFRS.

The Company uses non-GAAP measures including:

“EBITDA”, which is defined as earnings before interest, taxes, depreciation and amortization. Enthusiast Gaming calculates EBITDA using gross margin less total operating expenses plus share-based
compensation, amortization and depreciation and annual general meeting legal and advisory costs; and,

“Adjusted EBITDA”, which is defined as EBITDA plus severance and other non-recurring public costs. Non-recurring costs include items such as annual Nasdaq listing fees and directors and officers
(“D&O”) liability insurance specific to the Company’s former listing on Nasdaq.

Neither the Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the exchange) accepts responsibility for the adequacy or accuracy of this
release.

Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2024 and 2023
(Unaudited – Expressed in Canadian Dollars)
          For the three months ended   For the six months ended
          June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
                       
  Revenue   $ 14,704,634   $ 42,598,769   $ 38,032,873   $ 85,478,735  
  Cost of sales     4,974,098     27,616,077     14,226,178     53,730,485  
  Gross margin     9,730,536     14,982,692     23,806,695     31,748,250  
  Operating expenses                  
    Professional fees     345,530     690,063     898,088     1,143,399  
    Consulting fees     477,109     1,595,468     1,929,345     2,903,952  
    Advertising and promotion     243,556     938,613     723,360     2,394,724  
    Office and general     580,681     1,930,338     1,575,079     4,222,121  
    Salaries and wages     5,413,206     9,932,310     13,759,507     19,139,334  
    Technology support, web development and content     2,836,032     4,156,966     7,104,691     9,452,990  
    Esports player, team and game expenses     568,051     645,715     1,177,163     1,281,162  
    Foreign exchange loss     35,599     22,851     141,534     137,408  
    Share-based compensation     377,777     1,788,490     (1,620,480 )   2,918,821  
    Amortization and depreciation     715,967     2,886,075     1,431,461     6,224,098  
  Total operating expenses     11,593,508     24,586,889     27,119,748     49,818,009  
                       
  Other expenses (income)                  
    Investment in associates impairment     26,497     –     26,497     –  
    Other long-term asset impairment     1,098,506     –     1,098,506     –  
    Share of net loss (income) from investment in associates and joint ventures   6,477     (106,277 )   (18,905 )   66,170  
    Interest and accretion     563,310     605,385     1,186,524     1,215,725  
    (Gain) loss on revaluation of deferred payment liability     (46,468 )   374,101     (63,368 )   202,077  
    Gain on sale of assets held for sale     (344,852 )   –     (344,852 )   –  
    Loss on disposal of property and equipment     25,997     –     25,997     –  
    Loss on modification of long-term debt     397,058     –     397,058     –  
    Interest income     (396 )   (1,514 )   (5,449 )   (62,721 )
  Net loss before income taxes     (3,589,101 )   (10,475,892 )   (5,615,061 )   (19,491,010 )
                       
  Income taxes                  
    Current tax expense     24,554     22,279     127,137     225,771  
    Deferred tax expense (recovery)     (200,377 )   (281,579 )   (27,173 )   (763,489 )
  Net loss for the period     (3,413,278 )   (10,216,592 )   (5,715,025 )   (18,953,292 )
                       
  Other comprehensive (loss) income                  
  Items that may be reclassified to profit or loss                  
    Foreign currency translation adjustment     479,575     (2,141,800 )   1,465,701     (2,135,249 )
  Net loss and comprehensive loss for the period   $ (2,933,703 ) $ (12,358,392 ) $ (4,249,324 ) $ (21,088,541 )
                       
  Net loss per share, basic and diluted   $ (0.02 ) $ (0.07 ) $ (0.04 ) $ (0.12 )
  Weighted average number of common shares                  
    outstanding, basic and diluted     155,721,839     152,171,249     155,699,940     151,970,362  
                       
Enthusiast Gaming Holdings Inc.         
Condensed Consolidated Interim Statements of Financial Position      
As of June 30, 2024 and December 31, 2023        
(Unaudited – Expressed in Canadian Dollars)      
          June 30, 2024     December 31, 2023    
                 
  ASSETS            
  Current            
    Cash   $ 2,160,540   $ 6,851,966    
    Trade and other receivables     12,498,506     31,502,732    
    Income tax receivable     98,065     31,251    
    Prepaid expenses     1,129,808     1,820,144    
  Total current assets     15,886,919     40,206,093    
  Non-current            
    Property and equipment     185,756     124,640    
    Right-of-use assets     1,050,543     1,441,149    
    Investment in associates and joint ventures     278     2,888,730    
    Long-term portion of prepaid expenses     188,455     182,108    
    Intangible assets     81,431,598     85,421,227    
    Goodwill     106,868,938     105,868,081    
  Total assets   $ 205,612,487   $ 236,132,028    
                 
  LIABILITIES AND SHAREHOLDERS’ EQUITY          
  Current            
    Accounts payable and accrued liabilities   $ 25,671,337   $ 47,101,272    
    Contract liabilities     3,465,082     6,078,950    
    Income tax payable     77,018     274,924    
    Current portion of long-term debt     21,894,730     21,888,597    
    Current portion of deferred payment liability   –     82,231    
    Current portion of lease liabilities     665,803     740,212    
    Current portion of other long-term debt     13,007     9,668    
  Total current liabilities     51,786,977     76,175,854    
  Non-current            
    Long-term portion of deferred payment liability   2,098,507     2,083,262    
    Long-term portion of lease liabilities     634,774     938,845    
    Other long-term debt     145,018     140,613    
    Deferred tax liability     14,100,341     14,076,780    
  Total liabilities   $ 68,765,617   $ 93,415,354    
                 
  Shareholders’ Equity            
    Share capital     452,994,596     444,474,076    
    Contributed surplus     25,736,189     35,877,189    
    Accumulated other comprehensive income     8,667,677     7,201,976    
    Deficit     (350,551,592 )   (344,836,567 )  
  Total shareholders’ equity     136,846,870     142,716,674    
  Total liabilities and shareholders’ equity   $ 205,612,487   $ 236,132,028    
                 
Enthusiast Gaming Holdings Inc.          
Condensed Consolidated Interim Statements of Cash Flows          
For the six months June 30, 2024 and 2023          
(Unaudited – Expressed in Canadian Dollars)          
        June 30, 2024     June 30, 2023  
             
  Cash flows from operating activities          
  Net loss for the period   $ (5,715,025 ) $ (18,953,292 )
  Items not affecting cash:          
  Investment in associates impairment     26,497     –  
  Other long-term asset impairment     1,098,506     –  
  Amortization and depreciation     1,431,461     6,224,098  
  Share-based compensation     (1,620,480 )   2,918,821  
  Accretion     (31,188 )   137,327  
  Deferred tax expense (recovery)     (27,173 )   (763,489 )
  Share of net (income) loss from investment in associates and joint ventures (18,905 )   66,170  
  Gain on sale of assets held for sale     (344,852 )   –  
  (Gain) loss on revaluation of deferred payment liability     (63,368 )   202,077  
  Foreign exchange (gain) loss     (463,931 )   24,480  
  Loss on disposal of property and equipment     25,997     –  
  Gain on settlement of accounts payable     (622,413 )   –  
  Loss on modification of long-term debt     397,058     –  
  Provisions     4,166     165,145  
  Changes in working capital:          
  Changes in trade and other receivables     19,982,340     5,108,139  
  Changes in prepaid expenses     843,787     736,371  
  Changes in accounts payable and accrued liabilities     (20,543,835 )   2,974,533  
  Changes in contract liabilities     (2,124,657 )   (477,981 )
  Changes in income tax receivable and payable     136,207     594,894  
  Income tax paid     (400,927 )   (114,502 )
  Net cash used in operating activities     (8,030,735 )   (1,157,209 )
             
  Cash flows from investing activities          
  Proceeds from sale of assets held for sale     2,693,339     –  
  Distribution from investment in associates, net of adjustments   1,416,830     –  
  Repayment of deferred payment liability     (85,700 )   (844,350 )
  Acquisition of intangible assets     –     (27,488 )
  Acquisition of property and equipment     (115,815 )   (17,156 )
  Net cash from (used in) investing activities     3,908,654     (888,994 )
             
  Cash flows from financing activities          
  Proceeds from long-term debt, net of transaction costs     1,520,877     –  
  Repayment of long-term debt     (1,769,118 )   (2,176,470 )
  Repayment of other long-term debt     (3,002 )   (6,775 )
  Lease payments     (465,179 )   (439,184 )
  Net cash used in financing activities     (716,422 )   (2,622,429 )
             
  Foreign exchange effect on cash     147,077     (5,096 )
  Net change in cash     (4,691,426 )   (4,673,728 )
  Cash, beginning of period     6,851,966     7,415,516  
  Cash, end of period   $ 2,160,540   $ 2,741,788  
             
Enthusiast Gaming Holdings Inc.                
EBITDA and Adjusted EBITDA                
For the three and six months ended June 30, 2024 and 2023    
(Unaudited – Expressed in Canadian Dollars)    
                   
    For the three months ended   For the six months ended
      June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
                   
  Gross margin $ 9,730,536   $ 14,982,692   $ 23,806,695   $ 31,748,250  
  Operating expenses   (11,593,508 )   (24,586,889 )   (27,119,748 )   (49,818,009 )
  Share-based compensation   377,777     1,788,490     (1,620,480 )   2,918,821  
  Amortization and depreciation   715,967     2,886,075     1,431,461     6,224,098  
  EBITDA   (769,228 )   (4,929,632 )   (3,502,072 )   (8,926,840 )
  Severance   121,430     995,563     705,628     1,056,548  
  Listing fees & D&O insurance specific to the Company’s Nasdaq listing   240,935     530,117     619,970     1,411,355  
  Adjusted EBITDA   (406,863 )   (3,403,952 )   (2,176,474 )   (6,458,937 ) 
CONTACT: Contacts

Enthusiast Gaming: Felicia DellaFortuna, Chief Financial Officer
Investors: [email protected]
Media: [email protected]

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